Buisness is bearish on rates outlook

Business conditions are strengthening to near record levels but expectations of more interest rate rises have led to a fall in business confidence, a new survey has found.

National Australia Bank's Monthly Business Survey, released today, showed business conditions improved further in November to approach the record levels reached in late 1994.

Despite the indicated further improvement in business conditions, however, the National Australia Bank business confidence index fell sharply by 13 points to 10 points.

The NAB report said the fall in confidence appeared to reflect the initial reaction to interest rate moves and expectations of further upward adjustments.

In November, most sectors reported stronger business conditions, with double-digit improvements in wholesaling, transport and storage and agribusiness.

Overall business conditions rose by four points to a measure of 22, compared to 18 in the previous quarter, on the survey's Business Conditions Index, implying annual growth in non-farm GDP and/or domestic demand of five per cent or more.

However residential construction and related services, communications and some parts of manufacturing reported a marked deterioration in business conditions.

For the second consecutive month, the Trading Conditions Index rose by three points to 29 points.

The report's measure of profitability has edged higher to record levels during the past few months, and in November it rose by a further two points to 20 points - two points higher than in late 1994.

NAB's employment index also picked up further last month, rising six points to 17 points.

"In trend terms, employment growth strengthened for the fifth consecutive month to be consistent with job gains ... of 2.5 to three per cent per annum," the report said.

The deterioration in business confidence was broadly based, with falls especially reported by transport and storage, manufacturing, construction and retail.

Despite the fall, however, NAB's report found the level of confidence remained reasonably robust across most sectors, having retreated only to the levels reported at the middle of the year.

The survey also found that around 74 per cent of respondents agreed that a residential housing market bubble existed in Australia.

Five per cent of respondents said they expected falls in house prices of more than 10 per cent over the next 12 months, and four per cent expected rises of more than 10 per cent, while most respondents expected house prices to remain largely unchanged.